Inheritance Tax for Council Tenants

An article in The Telegraph the other day really caught our eye – there have been a lot of changes recently regarding inheritance tax (IHT) in the UK, which can see people taxed up to 40% of anything over £325,000 in their estate, but we were shocked to read about the extortionate taxes imposed on council dwelling pensioners.

Although a lot of noise has been made regarding IHT, there are actually only around 20,000 individuals who have enough money or assets to pay tax on anything over the £325,000 threshold; what is more prevalent is the number of pensioners who pay IHT – around 80,000 of them. And, rather shockingly, some can be taxed up to 100%.

The way the ruling works is determined by how poor the individual pensioner in question is. A number of vulnerable individuals claim full housing benefits if they are deemed too poor to pay rent. These benefits are revoked on the day of death – however, written into the contract for council house rental agreements is the rule that four-weeks' notice must be given before a property is vacated (roughly one month's rent). If an individual dies, therefore, this final month's rent can be removed from the estate of the deceased.

Whilst the rent due may only be a few hundred pounds for many this may equate to their entire life savings – meaning the council will take what is owed them, often leaving any descendants with nothing. Although they may have little to pass on, being able to bequeath some money to loved ones is something a lot of people take comfort in.

It is estimated that the government takes around £20 million in IHT this way annually – what do you make of this little-known form of IHT? Do you think it's fair, or should the government re-think this practice?